Monetary Policy

Raghuram Rajan is not an item number; there can’t be something new every 15 days

ARTS RAJANIf you are the kind who watches Hindi film trailers regularly, you would know that item numbers hit television screens regularly; once in about every two weeks is my guess. Such songs, normally do not have any link with the overall story of the movie and are typically included just to get the audience to the theatres, once the movie releases.
Given this, they have a very small shelf life. Of course there are songs like choli ke peeche kya hai which fall into this category and have survived the test of time. But they are exceptions that prove the rule.
The mainstream media also needs its shares of item numbers to keep the audience interested. And given the state of our country, there is no dearth of such events. It could mean non-stop coverage of a child who has fallen into a bore-well or a sting operation that merely states the obvious.
One part of the media which does not get enough item numbers is the business media. And typically they look forward to the days on which the Reserve Bank of India (RBI) presents the monetary policy. Today was one such day and business media was waiting for it with bated breath.
But the item number turned out to be a bhajan when the RBI governor Raghuram Rajan decided not cut the repo rate in the Sixth Bi-Monthly Monetary Policy Statement, for 2014-2015. Repo rate is the rate at which the RBI lends to banks and is currently at 7.75%.
Rajan had cut the repo rate on January 15, 2015, by 25 basis points. This was an inter-meeting cut with no monetary policy announcement being scheduled on that day. This cut had left the media gasping for more cuts.
Rajan in a press conference after the policy was announced today rubbed salt into media’s wounds(i.e. their disappointment at the repo rate not being cut) by saying that “monetary policy is a long term process. Don’t hold me for something new every 15 days.”
A rate cut would made the day easier for the business media. The stock market would have rallied. The experts would have explained why the stock market has rallied. Still other experts would have told us which are the stocks to buy now. The economists could be got in to explain, why the RBI cut the repo rate. They could also speculate about whether the RBI would cut the repo rate by 25 basis points or 50 basis points on April 7, 2015, the day, the next monetary policy statement is scheduled to be announced. And the television anchors could have brought out their million dollar smiles. All in all everyone would have had a good time.
But in the words of Sahir Ludhianvi made famous by Amitabh Bachchan “magar ye hona saka”.
Nevertheless, if people had chosen to read the last monetary policy statement carefully enough, they would have known that the chances of the RBI cutting the repo rate again on February 3, were next to nothing.
The statement had clearly said: “Key to further easing are data that confirm continuing disinflationary pressures.” This means that if inflation keeps falling or remains stable, the RBI will cut the repo rate more in the days to come. The trouble was that between January 15 and today no new inflation data was released. That will happen only next week.
In the same statement the RBI had further said that “also critical would be sustained high quality fiscal consolidation.” This financial year is more or less over. The only way the RBI can figure out how the government is planning to manage its fiscal deficit for the next financial year is by studying the annual budget once it is out on February 28, later this month. The fiscal deficit is the difference between what a government earns and what it spends.
Given this, any further rate cuts would mean waiting for new inflation data to come out as well as waiting for the government to present its budget.
As the RBI said in the monetary policy statement released today: “The Reserve Bank also indicated that “key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…”. Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance.”
Over and above this the RBI also needs to take a look at a few other data points that are scheduled to be released. Sometime late last week, the ministry of statistics and programme implementation released a new method of calculating the GDP. This changed the base year for calculating the GDP from 2004-2005 to 2011-2012. The structure of the economy keeps changing. Hence, the GDP calculations also need to keep pace with this change. Over and above that the data that the government has access to keeps improving over the years, and this also needs to be incorporated in the way the GDP is calculated.
This new GDP data essentially suggests that the Indian economy grew by 4.9% during 2012-13, and 6.6% during 2013-14. The earlier calculations had suggested that the Indian economy grew by 4.5% in 2012-2013 and 4.7% in 2013-2014.
On February 9, later this month the government will release the expected GDP growth for 2014-2015, using the new method unveiled late last week. The RBI will have to take this into account while deciding what to do with the repo rate in the days to come.
Along with the new GDP, the RBI also will have to monitor the revision in the way the consumer price index is calculated. As the central bank said in its statement: “As regards the path of inflation in 2015-16, the Reserve Bank will keenly monitor the revision in the CPI, which will rebase the index to 2012 and incorporate a more representative consumption basket along with methodological improvements.”
Given these reasons, the next action from the RBI on the repo rate front, will happen only after the government has presented its annual budget irrespective of the business media continuing to make a song and dance about it.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

This column originally appeared on www.firstpost.com on February 3, 2015

What are the financial markets making out of Janet Yellen’s mumbo jumbo

yellen_janet_040512_8x10

Vivek Kaul

People who head central banks are not the kind who talk in a language that is easily understood. As Alan Greenspan, the Chairman of the Federal Reserve of the United States, the American central bank, from 1988 to 2006, once said “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
Nevertheless, things have changed in the aftermath of the financial crisis which broke out in September 2008. Central banks and individuals who head them now tend to communicate a little more clearly than they used to in the past.
Take the case of the Federal Reserve which has been saying for a while now that it will maintain low short term interest rates of between zero to ¼ percent “for a considerable time”. The financial markets around the world have taken this phrase as good news. It has allowed them to borrow money at low interest rates and invest them in financial markets all over the world.
There is an entire army of people who make a living out of analysing what the Federal Reserve is saying. After the Federal Reserve chose to stop printing money in October 2014, there has been considerable debate among these army of analysts who track the Fed, about what does the phrase “for a considerable time” really mean. They have also asked if the Federal Reserve would remove the phrase when it met in December. And if it did that what would that mean?
The Federal Open Market Committee (FOMC) in the latest monetary policy statement released yesterday said: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” It seemed that the Fed had dropped the phrase “for a considerable time,” which had kept the Fed watchers interested for a considerable period of time.
Interestingly, the statement then went to clarify that the new words did not mean anything different from the earlier phrase. “The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program,” the latest statement said.
Federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank, on an overnight basis. Until October 2014, the Federal Reserve had been printing money and pumping money into the financial system by buying government bonds and mortgaged backed securities. This it referred to as the asset purchase program.
So, the Federal Reserve seems to have removed the phrase “for a considerable time” and reintroduced it as well. As the economist Tim Duy put it: “If you thought they would drop “considerable time,” they did. If you thought they would retain “considerable time,” they did. Everyone’s a winner with this statement.” Nevertheless, this briefly sent Fed watchers into a tizzy after the statement was released. What did the Fed really mean?
Janet Yellen, the Chairperson of the Federal Reserve, clarified this in the press conference that followed the Federal Reserve’s two day meeting. “The statement that the committee can be patient should be interpreted that it is unlikely to begin the normalization process for at least the next couple of meetings,” Yellen said.
What this possibly means is that the Federal Reserve won’t raise the federal funds rate, which acts as a benchmark for short term interest rates at least till April. The Federal Reserve’s first two monetary policy meetings are scheduled in January and March next year.
Interestingly, later on in the press conference Yellen in a way took back this earlier statement when she said: “The Fed will feel free to make news at meetings even when there isn’t a scheduled press conference.” She also said that “no meeting is completely off the table” for raising interest rates.
All FOMC meetings do not have a press conference scheduled after the meeting ends. The Federal Reserve doesn’t have another press conference scheduled until March 2015. So, at the end of the day Yellen wasn’t really clear in communicating about when the Federal Reserve is likely to start raising the federal funds rate.
In the FOMC statement it was said that the Federal Reserve would be “patient” when it came to raising the federal funds rate. In the press conference Yellen said that the Fed wasn’t likely to raise the federal funds rate in the first two meetings scheduled next year. Then she also said that no meeting is completely off the table when it comes to the question of raising the federal funds rate.
Also, in the meeting Yellen dismissed all the reasons against not increasing the federal funds rate.
So where does all this leave us? Confused? Bloomberg View has a possible answer: “The Fed doesn’t know when it will start to raise interest rates, nor should it have to know, nor should it indulge analysts’ misconceived determination to find out. Interest-rate changes are not, and should not be, on a schedule. They depend entirely on what happens in the economy, and the Fed — like every last one of those analysts — doesn’t know what will happen.”
So why did the Federal Reserve and Janet Yellen indulge in all the mumbo jumbo? As Bernard Baumohl, The Economic Outlook Group, told The Wall Street Journal: “For a Fed that seeks to introduce more clarity and transparency of its views, they have in fact done the opposite. The tortuous, semantic-conscious language of the statement is really an exercise in obfuscation, one that harkens back to the days of Alan Greenspan.” So “Janet Yellen” managed to do an “Alan Greenspan” yesterday.
Further, like the analysts who track the Federal Reserve, the Fed Chairperson is also not in a position to say: “I don’t know”. Even though Yellen clarified time and again that everything was “data dependent”.
The statement issued by the Fed was vague enough. But in the press conference Yellen said that the Fed would not raise the federal funds rate for the first couple of meetings next year, and then she had to quickly go into damage control mode, to try and make things vague enough again. My theory is that Yellen is trying to get the markets used to the idea of higher interest rates in the days to come, without saying so loud and clear, so that she does end up spooking the markets.
The all important question is how is the market taking it? The financial markets all over the world were worried that the Federal Reserve might increase the federal reserve rate for the first time in eight years since 2006. Now that has not happened. Also, it is likely that the Federal Reserve might not raise rates before April (that was one of the things that Yellen said after all).
Further, the consumer price inflation in the United States for the month of November 2014 came in at 1.3%. The number had stood at 1.7% in October 2014. This is the largest month on month decline in inflation since December 2008. This fall in inflation has largely been due to a massive decline in oil prices over the last six months.
The point here being that a rate of inflation of 1.3% is well below Fed’s inflation target of 2%. As the Federal Reserve’s statement yesterday pointed out: “the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation”. If the inflation number continues to be well below 2%, then there is not much chance of the Federal Reserve raising interest rates immediately.
This is the message that the financial markets seem to have taken from the Federal Reserve. The S&P 500, one of the premier stock market indices in the United States, rallied by 2% to close at 2012.89 points yesterday. The Nikkei 225 in Japan is up 2.3% to 17,232 points today. Stocks in Australia were up 1%. The BSE Sensex is currently up around 1% and is quoting at levels of around 27,000 points.
Long story short: The financial markets seem to remain convinced that the easy money will continue at least in the short-term. Yellen, on the other hand is trying to get the markets ready for an interest rate hike next year.

The article appeared originally on www.FirstBiz.com on Dec 18, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Rajan and RBI have done their bit, now the ball is in government’s court

ARTS RAJANOne of the laws of forecasting is to publicize the forecasts that you get right. On November 17, 2014, I wrote a piece titled Raghuram Rajan won’t cut interest rates even in Hindi.
In the Fifth Bi-Monthly Monetary Policy Statement released yesterday (December 2, 2014), Raghuram Rajan, the governor of the Reserve Bank of India (RBI), kept the repo rate unchanged. Repo rate is the rate at which the RBI lends to banks.
This was along expected lines. Rajan unlike many other central banks believes in clear communication. As Alan Greenspan, the Chairman of the Federal Reserve of the United States, the American central bank, from 1988 to 2006, once said “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.” Rajan does not believe in this school of thought and what he writes and says is normally very clear.
And that’s true about the latest monetary policy statement as well. He lays out very clearly what the Indian central bank is thinking at this point of time.
Let’s look at a few statements that Rajan made in the monetary policy statement. These statements are italicized and what follows is my interpretation of the statements.
“Further softening of international crude prices in October eased price pressures in transport and communication. However, upside pressures persist in respect of prices of clothing and bedding, housing and other miscellaneous services, resulting in non-food non-fuel inflation for October remaining flat at its level in the previous month, and above headline inflation.”
What Rajan means here is that overall inflation(i.e. rate of price rise) has been falling. But the prices of a part of the consumer price index which consists of non food and non fuel items haven’t been falling as fast as the overall inflation has been. Given this, its not yet time for the RBI to cut the repo rate or the rate at which it lends to banks.
“Survey-based inflationary expectations have been coming down with the fall in prices of commonly-bought items such as vegetables, but are still in the low double digits. Administered price corrections, as and when they are effected, weaker-than-anticipated agricultural production…could alter the currently benign inflation outlook significantly.”
Inflationary expectations (or the expectations that people have of what future inflation is likely to be) have been coming down. This means that people expect the rate of price rise to come down in the days to come. Nevertheless, the inflationary expectations are still on the high side, given that they remain in the low double digits.
Further, agricultural production is likely to fall as well. “It is reasonable to expect some firming up of these prices in view of the monsoon’s performance so far and the shortfall estimated for kharif production,” the statement read. This could push up inflation in the days to come. The RBI needs to wait and see how these factors pan out, before deciding to cut the repo rate.
“Inflation has been receding steadily and current readings are below the January 2015 target of 8 per cent as well as the January 2016 target of 6 per cent. The inflation reading for November – which will become available by mid-December – is expected to show a further softening. Thereafter, however, the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December (data release in mid January) may well rise above current levels.”
A large part of the above statement is self explanatory. The Rajan led RBI expects the rate of inflation to have fallen further for November 2014. Nevertheless, a large part of this fall in inflation is because of the favourable base effect feels the RBI. What this means is that inflation in November 2013 was at a high level. This high inflation in November 2013 will make the inflation in November 2014 look small. (For a detailed explanation of the base effect click here). The RBI expects this base effect to go away after November and inflation to rise. Hence, it wants to wait and watch and see how the situation turns out by early next year.
This statement is also important from the point of view of inflationary expectations. They start to come down only once the people see low inflation being maintained for a while. And if inflation actually has to be controlled, the inflationary expectations need to be controlled first.
“ Risks from imported inflation appear to be retreating, given the softening of international commodity prices, especially crude, and reasonable stability in the foreign exchange market. Accordingly, the central forecast for CPI inflation is revised down to 6 per cent for March 2015.”
In this statement the Rajan led RBI acknowledges that one of the reasons for the falling inflation is a fall in oil prices. The RBI also says that it largely expects the inflation not to spike from here but is not totally sure about it. And given that they have revised the inflation number for March 2015 to 6%. Earlier it was at 8%. This statement reaffirms the fact that the RBI wants to wait and watch and be sure that the low inflation environment is here to stay. In short, it doesn’t want to jump the gun.
“With deposit mobilisation outpacing credit growth and currency demand remaining subdued in relation to past trends, banks are flush with funds, leading a number of banks to reduce deposit rates.”
“Some easing of monetary conditions has already taken place. The weighted average call rates as well as long term yields for government and high-quality corporate issuances have moderated substantially since end-August. However, these interest rate impulses have yet to be transmitted by banks into lower lending rates.”
In these statements Rajan points out that interest rates on deposits have fallen despite the RBI not reducing the repo rate. He also acknowledges that RBI plays a limited role in influencing interest rates. Further, the overall rate of loan growth for banks has been falling. Given this, the government and big corporates have been able to raise money at lower interest rates since the end of August 2014.
This quip is aimed at the businessmen who have been asking Rajan to cut interest rates. Further, this slowdown in the loan growth for banks has not transmitted into lower interest rates for everybody as yet. The government and the big corporates are the only ones who have benefited from it.
“The Reserve Bank has repeatedly indicated that once the monetary policy stance shifts, subsequent policy actions will be consistent with the changed stance. There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public’s inflationary expectations, as well as the success of the government’s efforts to hit deficit targets. A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.”
This is the crux of the monetary policy statement. What Rajan is saying here is that the RBI is still not totally convinced about cutting the repo rate. It doesn’t feel comfortable in declaring that the battle against inflation has been won.
It feels that if the rate of inflation continues to remain low, the inflationary expectations continue to fall and the government is able to meet its fiscal deficit targets, only then would have the RBI achieved what it set out to, after Rajan took over as the governor in September 2013.
Fiscal deficit is the difference between what a government earns and what it spends. The difference is made up through borrowing. If the government borrows more, it pushes up interest rates because it leaves a lower amount for others to borrow.
Once the RBI sees these three factors under control it will start cutting the repo rate and it will do that at a rapid rate. This, the central bank feels is likely to happen early next year. It has also made it clear that once it is convinced about the need to cut the repo rate it will do that without waiting for the days on which monetary policy is scheduled.
The phrase to mark here is “early next year,” which is open ended. Since Rajan has talked about waiting to see if the government is able to maintain its fiscal deficit target, the repo rate cut is likely to happen after the budget is presented in late February.
There are a couple of other points that I would like to make:

a) It was nice to see Rajan stick to his guns and not fall for the pressure to cut interest rates. This, despite the fact that Arun Jaitley went on an overdrive demanding that the RBI cut interest rates. He even met Rajan on December 1.

b) Further, Rajan has always maintained that if inflation is controlled economic growth will follow. As he wrote in the 2008 Report of the Committee on Financial Sector Reforms: “The RBI can best serve the cause of growth by focusing on controlling inflation.”

He repeated the same statement while talking to reporters yesterday. As he said “There is a major misconception in the industry that the RBI is not concerned about growth. The central bank is concerned about growth and the way to sustainable growth is to have a moderate inflation…RBI wants the strongest growth for India that is possible. We’re talking of years of sustainable growth for which you need to fight inflation.”
This statement should go a long way in countering those who had been trying to portray RBI’s efforts at countering inflation in a negative way and trying to hold it wrong for the low growth environment that prevails in the country these days.
In the end, like good central bank governors often do, Rajan acknowledged that there is only so much that the RBI can do. If economic growth has to be revived the government needs to get its act together. As he said towards the end of the monetary policy statement “A durable revival of investment demand continues to be held back by infrastructural constraints and lack of assured supply of key inputs, in particular coal, power, land and minerals. The success of ongoing government actions in these areas will be key to reviving growth.”
The RBI due to its own efforts and with some luck(like oil prices crashing) has brought inflation under some control. Now it’s over to the government.

The article originally appeared on www.equitymaster.com as a part of The Daily Reckoning, on Dec 3, 2014

Money printing is ineffective: Why monetary policy, as we know it, is nearing its death

helicashVivek Kaul

Everything under the sun is in chaos. The situation is excellent.
– Mao Zedong

It has been a little over six years since the start of the current financial crisis in mid September 2008, when the investment bank Lehman Brothers went bankrupt. In the aftermath of the financial crisis the Western central banks went on a money printing binge.
Economist John Mauldin in a recent column titled The End of Monetary Policy estimates that central banks have printed $7-8 trillion since the start of the financial crisis. It is worth pointing out here that this money is not actually printed, but created digitally.
As John Lanchester writes in his wonderful new book How to Speak Money “It’s money that simply didn’t exist before. It’s like typing 100,000 at a keyboard and magically having £ 100,000 added to your bank account.”
Hence, this money is not actual printed money. As Tim Harford writes in The Undercover Economist Strikes Back: “A lot of it is money…not actual printed ‘paper money’ but ‘printing money’ is the simple way to talk about this.”
Once this new money has been created it is used to buy bonds, both private as well as government. This has been done to pump money into the financial system and ensure that there is enough money going around to keep interest rates low.
At low interest rates the hope was that people would borrow and spend more. This would create some demand and help economic growth. But has that really happened? The major creator of new money in the last six years has been the Federal Reserve of United States, the American central bank. It has printed (oops digitally created) around $3.6 trillion of new money since the financial crisis started. And it still continues to do so.
The hope as Henry Hazlitt put it in his book Economics in One Lesson is that “this increased money [will increase]…everyone’s “purchasing power,” in the sense of everybody to buy more goods than before.”
Nevertheless this hasn’t led to a jump in consumer expenditure. Household consumption forms nearly 70% of the American economy. As economist Stephen Roach wrote in a recent column “In fact, since early 2008, annualized growth in real consumer expenditure has averaged a mere 1.3% – the most anaemic period of consumption growth on record.”
This is reflected in the growth of the American GDP as well. As Roach points out “Though $3.6 trillion of incremental liquidity has been added to the Fed’s balance sheet since late 2008, nominal GDP was up by just $2.5 trillion from the third quarter of 2008 to the second quarter of this year.”
Hence, what economists call the “multiplier effect” hasn’t really worked.
The other hope was that all this new money would chase the same amount of goods and services, and this, in turn, would lead to some inflation. As prices would start to rise people would buy goods and services in the hope of getting a better deal.
But that hasn’t happened either. As John Mauldin writes “France has inflation of 0.5%; Italy’s is -0.2% (as in deflation); the euro area on the whole has 0.4% inflation; the United Kingdom (which still includes Scotland) is at an amazingly low 1.5% for the latest month, down from 4.5% in 2011; China with its huge debt bubble has 2.2% inflation.” The inflation in the United States is at 1.7%. This is below the Federal Reserve’s stated goal of 2%.
The only developed country which has managed to create some inflation is Japan. The inflation in Japan is at 3.4%. So has the money printing by Japan managed to create some inflation? Not really. As Mauldin explains “What you find is that inflation magically appeared in March of this year when a 3% hike in the consumption tax was introduced. When government decrees that prices will go up 3%, then voilà, like magic, you get 3% inflation. Take out the 3% tax, and inflation is running about 1%.”
Instead of reviving consumer expenditure and creating inflation, all the printed money has been borrowed by institutional investors at very low rates of interest and been invested in financial markets all over the world. Stock markets in various parts of the world have seen huge rallies despite economic growth stagnating. Central banks have hoped that these rallies might lead to a wealth effect. Wealth effect is a situation where the rising value of the financial assets makes people feel richer and hence, spend more money.
But that doesn’t seemed to have worked either. As Roach writes “The operative view in central-banking circles has been that the so-called “wealth effect” – when asset appreciation spurs real economic activity – would square the circle for a lagging post-crisis recovery. The persistently anaemic recovery…belie this assumption.”
This anaemic recovery is visible in the low economic growth rates prevalent through large parts of the developed world. As Mauldin writes “The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.”
What all this clearly tells us is that what central banks call “monetary policy” is not working as it is expected to. Investopedia defines monetary policy as “The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rate.”
The irony of course is that even though the monetary policy is not working the central banks around the world don’t seem to be in a hurry to get rid of it. The money printing programme in the United States has more or less come to an end. Nevertheless, the Federal Reserve has made it clear that it is no hurry to withdraw all the money that it has printed and pumped into the financial system. Hence, it hopes to keep long term interest rates low for sometime.
Other parts of the developed world though are still going strong on money printing. As Ben Hunt, Chief Risk Officer, Salient Partners, wrote in a recent newsletter titled Going Gray “The biggest thing happening in the world today is the growing divergence between US monetary policy and everyone else’s monetary policy. There is a schism in the High Church of Bernanke, with His US acolytes ending the quantitative easing [the technical term the economists have given to printing money] experiment in no uncertain terms, and His European and Japanese prelates looking to keep the faith by continued balance sheet expansion.”
Despite its non-effectiveness, central banks still have faith in monetary policy, as it has been practised over the years. And this might lead to monetary policy totally collapsing in the years to come.
To conclude, let me quote Mauldin: “Sometime this decade (which at my age seems to be passing mind-numbingly quickly) we are going to face a situation where monetary policy no longer works. Optimistically speaking, interest rates may be in the 2% range by the end of 2016, assuming the Fed starts to raise rates the middle of next year and raises by 25 basis points per meeting. If we were to enter a recession with rates already low, what would dropping rates to the zero bound again really do? What kind of confidence would that tactic actually inspire? And gods forbid we find ourselves in a recession or a period of slow growth prior to that time. Will the Fed under Janet Yellen raise interest rates if growth sputters at less than 2%?”
These are questions worth thinking about.

The article originally appeared on www.FirstBiz.com on Oct 13, 2014 

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)